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DigitalOcean (DOCN) Q1 FY26 earnings call: guidance and Q&A

Earnings call· Mar 2026 (Q1 FY26)· Information Technology· May 5, 2026

Source: earnings call transcript

Executive summary

DigitalOcean Q1 FY26 — Accelerating Growth Driven by AI Native Cloud and Capacity Expansion

DigitalOcean delivered strong Q1 FY26 results, driven by accelerating growth from AI-native and large cloud customers, and a significant product launch with the AI native cloud. The company raised substantial equity to expand data center capacity, strengthening its balance sheet and enabling increased revenue guidance for both 2026 and 2027, focusing on durable and profitable growth in the inferencing and Agentic markets.

Highlights

5

  • Q1 revenue was $258 million, up 22% year-over-year, exceeding guidance.

  • AI customer ARR reached $170 million, growing 221% year-over-year.

  • ARR from $1 million+ customers reached $183 million, growing 179% year-over-year.

  • Raised full-year 2026 revenue growth projection to 25%-27% and 2027 revenue growth to 50% or more.

  • Secured 60 megawatts of incremental data center capacity, bringing total committed capacity to 135 megawatts.

Concerns

2

  • Projected adjusted free cash flow margin for FY26 is 9%-12%, including a ~$100 million cash flow impact from nonrecurring start-up costs for new capacity.

  • CapEx per megawatt for new capacity is expected to be higher due to rising component costs and higher token capacity equipment.

Guidance & targets

CategoryTargetConfidence
Q2 FY26 Revenue
$272 million to $274 million
medium materiality
High
Q2 FY26 Adjusted EBITDA Margin
37% to 38%
medium materiality
High
Q2 FY26 Non-GAAP Diluted Net Income Per Share
$0.20 to $0.23
medium materiality
High
Full Year 2026 Revenue
$1.13 billion to $1.145 billion
high materiality
High
Full Year 2026 Adjusted EBITDA Margin
37% to 39%
medium materiality
High
Full Year 2026 Adjusted Free Cash Flow Margin
9% to 12%
medium materiality
High
Full Year 2026 Non-GAAP Diluted Net Income Per Share
$1.10 to $1.20
medium materiality
High
Full Year 2027 Revenue Growth
50% or more
high materiality
High
Full Year 2027 Adjusted EBITDA Margin
Approximately 40%
medium materiality
High
Full Year 2027 Adjusted Free Cash Flow Margin
High teens
medium materiality
High

DOCN operating KPIs by quarter

DOCN operating KPIs stated on its earnings calls, by fiscal quarter
KPI Dec 2025 Q4 FY25This call Mar 2026 Q1 FY26 Jun 2026 Q2 FY26Change vs prior quarter
Annual recurring revenue (ARR) Customers spending over $1M
$133M Our $1 million-dollar customers reached $133 million in ARR, growing at 123% year-over-year. Source: earnings call transcript
$183M Q1 revenue was $258 million up 22% year-over-year, with million dollar plus customers growing 179% year-over-year to $183 million in ARR. Source: earnings call transcript
—+37.6%
Annual recurring revenue (ARR) AI customers
$120M And these customers are growing rapidly with Q4 AI customer ARR reaching $120 million, growing 150% year-over-year, now making up 12% of total ARR. Source: earnings call transcript
$170M AI customer ARR grew 221% to $170 million, and we beat every financial target we shared in our last call. Source: earnings call transcript
$234M AI customer ARR reached $234 million, growing over 200% year-over-year. Source: earnings call transcript
+37.6%
Remaining performance obligation (RPO)
$134M We also continue to improve visibility on our near-term revenue growth as we increased RPO in Q4 to $134 million, up 121% sequentially and up close to 500% year-over-year. Source: earnings call transcript
$243M [ RPO ] reached $243 million, up an extraordinary 1,700% year-over-year. Source: earnings call transcript
$894M This traction is evident in the material commitments we secured during the quarter which collectively increased remaining performance obligations to $894 million, up more than 12x year-over-year with a 3.7-year average life. Source: earnings call transcript
+267.9%
Data centers —
20 We operate a global scale infrastructure with 20 data centers purpose built for AI workloads running a full stack core computing platform with a complete set of computing primitive that Agentic workloads demand. Source: earnings call transcript
20 Every turn adds products to the stack we own, an integrated platform running on our own infrastructure, spanning 20 global data centers, owning the stack lowers our cost to serve and that lower cost structure combined with the emergence of high-quality, low-cost open weight models gives us better unit economics to serve our customers, which in turn enables us to win more customers. Source: earnings call transcript
0%

Operating figures the company stated on at least two of the calls shown, checked against each call's transcript. Click a figure to read the sentence. A dash means it was not stated that quarter.

Orderbook & backlog

Remaining Performance Obligations (RPO) $243 million Q1 FY26

up 1,700% year-over-year

Product announcements

ProductTypeDetails
DigitalOcean AI Native Cloudlaunch
New Inference Enginelaunch
Managed MySQL and PaaS CRIs databases (Enterprise Version)launch
Vector Database Supportlaunch
Managed Agents Platformlaunch

Deals & partnerships

Cataneo Acquisition to accelerate open source AI stack.

Acquisition completed last quarter, contributing to the DigitalOcean AI native cloud development, specifically the Plano data plane and inference router.

Capital programs

Existing Committed Data Center Capacity on track

Benefit:31 megawatts

Previously communicated 31 megawatts remain on track to be delivered as planned in 2026. Richmond facility began ramping revenue in March.

Incremental Data Center Capacity secured
Funding: equity proceeds

Benefit:60 megawatts

Secured approximately 60 megawatts across four new locations, bringing total committed capacity to 135 megawatts. This capacity is projected to begin ramping revenue over the course of 2027. Build-out likely to start in late 2026, impacting 2026 cash flow and margins. CapEx per megawatt expected to be higher than prior equipment due to rising component costs and higher token capacity equipment, but expected to generate same or higher ROI.

Risks & headwinds

Start-up costs for new capacity FY26

~$100 million cash flow impact

Mitigation:Included in adjusted free cash flow margin guidance for FY26; without these costs, FCF margin would be higher.

Higher CapEx per megawatt for new capacity

higher than for 31 megawatts equipment ordered last year

Mitigation:Driven by rising component costs and higher token capacity equipment; company expects to generate same or higher return on investment and will align timing of investments with revenue by financing a material portion of equipment.

What to watch in Q2 FY26

Q2 FY26 Revenue Growth

next quarter
Current 22% YoY (Q1 FY26)
Target 24% to 25% YoY

Why it matters

Verifies continued acceleration of top-line growth and execution against raised guidance, indicating sustained customer demand.

For the second quarter of 2026, we expect revenue of $272 million to $274 million, representing 24% to 25% year-over-year growth.

Find out whether DOCN delivers this. Inve re-checks your case every morning.

Q&A highlights

How relevant is the CPU renaissance for DigitalOcean's business given its core cloud and CPU footprint, especially with Agentic workloads requiring a mix of CPU and GPU?

The company anticipates a compute-heavy future with Agentic workloads requiring significant CPU, high-bandwidth memory, advanced databases, and orchestration. While the exact CPU:GPU ratio is uncertain, DigitalOcean is preparing for this by deploying its full-stack AI native cloud in new data centers, not just inferencing services.

“we are going to need a hell a lot of more compute to do all of these things as more software gets rearchitected over the next handful of years to be more Agentic, which requires both inferencing for the thinking part and a lot of computing for the doing part.”

asked by William Kingsley Crane · answered by Padmanabhan Srinivasan

2 min read 5 chapters

Detailed narrative

Accelerating Momentum and Customer Growth

DigitalOcean reported Q1 FY26 revenue of $258 million, a 22% year-over-year increase, exceeding guidance. This growth was primarily driven by strong retention and expansion within top cloud and AI-native customer cohorts. AI customer ARR surged 221% to $170 million, while ARR from customers spending over $1 million grew 179% to $183 million. The company achieved a record $62 million in incremental organic ARR, the highest in its history, demonstrating strong customer adoption and scaling on the platform.

Launch of DigitalOcean AI Native Cloud

The company launched its AI native cloud, a significant product offering designed for inferencing and Agentic workloads. This platform features over 15 new product launches across five integrated layers, including a global infrastructure with 20 data centers, a new inference engine, advanced data and learning layers with managed databases and vector support, and a managed agents platform. The platform emphasizes openness with open-source options at every layer, catering to AI-native companies that require flexibility and compelling unit economics.

Strategic Capacity Expansion and Capital Allocation

DigitalOcean raised $888 million in equity proceeds during Q1 FY26, which was used to strengthen its balance sheet by repaying a $500 million Term Loan A and securing 60 megawatts of incremental data center capacity. This new capacity, across four locations, is slated to ramp revenue throughout 2027, bringing the total committed capacity to 135 megawatts. The company continues to pursue additional capacity for 2027 and 2028, aiming to meet growing customer demand in the generational AI market opportunity.

Competitive Differentiation in the AI Market

DigitalOcean positions its AI native cloud as distinct from hyperscalers (more open, purpose-built for modern software), GPU Neoclouds (full-stack inferencing and Agentic platform vs. training-optimized), and inference wrapper providers (broader platform for complete software development). Key differentiators include its AI middleware (Plano data plane and inference router), managed agents platform, and data gravity through integrated managed databases. Independent benchmarks show DigitalOcean delivering superior output speed for leading open-source models.

Financial Discipline and Profitability

Despite significant investments in capacity expansion, DigitalOcean maintains strong profitability. Q1 adjusted EBITDA was $105 million, representing a 41% margin. Trailing 12-month adjusted free cash flow was $171 million, or 18% of revenue. The company expects to exit 2026 at approximately 3x net leverage with no material debt maturities until 2030, demonstrating a commitment to both rapid growth and durable profitability.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.